Investors choosing funds without advice are always taking a bigger risk than necessary, especially as the marketing literature of providers often leaves a lot to be desired. So Hargreaves Lansdown has published a list of the 150 funds it believes investors should consider at the exclusion of the other 1,650 funds in the market.
Some of the boutiques have given their deep-pocketed rivals a bloody nose. Artemis, for instance, has seven funds on the list, one more than the mighty Fidelity and several more than groups the size of M&G and Threadneedle.
In fact, both of the latter have just two funds present despite M&G's stable of around 40 funds and Threadneedle's position as the UK's second-biggest fund manager.
To put this further in perspective, Aberdeen Asset Management, which sold the bulk of its quality retail funds to New Star earlier this year, has the same number.
M&G and Threadneedle are fairly sanguine about their minor presence on the list, however, with M&G particularly happy to have an equity fund – its recovery portfolio – sitting alongside the more predictable high-yield corporate bond fund. Managing director Phil Wagstaff says: “Am I disappointed? Well, my challenge is to persuade people of our equity case and I am delighted to see the recovery fund there. We probably do not deserve to have many more on the list at the moment but give it time and I think we will get a few more on there.”
Wagstaff is disappointed, however, about the omission of M&G's flagship corporate bond fund, which has performed well under the stewardship of Anna Griffin. But as Richard Woolnough, Old Mutual's former star manager, is taking over the fund next year, Wagstaff says he understands why HL may not be keen to recommend a fund in flux.
Nevertheless, HL is keen to keep a close eye on its performance and expects it to make an appearance in the near future, possibly alongside Woolnough's other fund – the strategic bond fund – which is launching in the first quarter of next year.
Threadneedle believes its relative underperformance on the list is due to the fact that several of its leading funds – such as its UK select growth, mid 250 and limited-issue funds – are recent additions to its range.
Communications director Richard Eats says: “I am surprised that HL has not included the high-yield bond fund as we regard our high-yield team as the best in the market.”
Performance is key but HL's criteria revolve around potential or sustained performance in the long term rather than the immediate benefits.
This is best reflected by the fact that there are huge discrepancies between each sector on the list. The UK growth sector, for instance, is represented by 36 funds while the North America sector has only eight funds. Technology and telecoms, despite recent rallies, has only three. According to HL, this is simply a consequence of its selection criteria, a combination of quant screens and the qualitative preferences of its investment team led by head of research Mark Dampier.
Senior analyst Meera Patel says the integrity of HL's app-roach to the list is further ref-lected by the presence of companies that few people will have heard of. Among these, she includes Thornhill Capital, SVM and Unicorn, which have some outstanding funds but almost no brand to speak of. She is also pleased to see so many boutiques knocking their monolithic rivals off the list.
This is not to sound the death knell for the major groups, however. Boutiques may be snapping at their ankles but the top of HL's list is dominated by the usual suspects. Invesco Perpetual is the big winner with 10 funds, closely shadowed by Jupiter and New Star – no longer a boutique with £4.3bn of retail money under management – with nine funds.
With seven funds, how-ever, Artemis can look down on Fidelity, which has only six – certainly no disgrace but few experts would have thought it could be usurped by a com-pany which is a fraction of its size. Framlington, a mid-sized group widely perceived to be going nowhere fast two years ago, also has seven funds and not just because it now has Nigel Thomas and George Luckraft on board.
But perhaps the best example of a group punching its weight is Liontrust, which has three funds on the list from a total product range of five. The boutiques may not have the sheer numbers to dominate the list in the way Invesco can but on a ratio basis – in terms of performance – they more often than not best their bigger rivals. Without lists such as HL's, however, few direct investors would ever know.